ECB’S foreign reserve asset management

Maintenance and size

In the context of the conduct of intervention operations in international foreign exchange markets, the European Central Bank (ECB) holds foreign reserve assets, transferred to it by national central banks, under Article 30.1 of the Statute of the European System of Central Banks (ESCB).

In January 1999 national central banks of countries participating in Stage Three of EMU transferred foreign reserve assets to the ECB, totalling €39,460 million, of which 15% in gold and the remainder in US dollars and Japanese yen.
 
When joining the euro area, new members make transfers that are calculated in proportion to their share in the subscribed capital of the ECB. Each national central bank shall be credited by the ECB with a euro-denominated claim equivalent to its contribution.
 
The value in euros of the ECB’s foreign reserve assets is subject to fluctuations, due to income from asset management (excluding the share in gold), exchange rate movements in basket currencies and, if applicable, market operations.
 
Furthermore, under Article 30.4 of the Statutes of the European System of Central Banks, the ECB may effect further calls of foreign reserve assets beyond the limit of the initial transfer, in order to replenish the asset holdings used in intervention operations, up to an amount equivalent to €50,000 million. Additional transfers are subject to EU legislation. The EU Council has approved, under proposal of the ECB, the regulation defining and authorising the current values in force.

Management

The aim of the ECB’s foreign reserve active management is to ensure that, at any point in time, the ECB has an amount of liquid resources sufficient for any foreign exchange intervention. Upon meeting the liquidity and safety requirements, the ECB’s reserves are managed in order to maintain and maximise their value.

Foreign reserves are managed by the national central banks, under the existing agency agreement with the ECB, according to a strategic and tactical framework defined by it, which includes the breakdown by currency, the market and credit risk profile, and liquidity requirements. However, and to prevent conflicts of interest or any interference with monetary and exchange rate policies, reserve management has no room for an active management of exchange rate risk for investment purposes.
 
Investment decisions conveyed by the ECB to national central banks are described in the applicable Guidelines and consist of investment benchmarks and limits to be implemented, namely:

• Eligible instruments and operations;
• Authorised counterparties and intermediaries;
• Exposure limits.

The ECB approves a strategic portfolio reflecting its longer-term preferences. Medium and short-term preferences are presented in a benchmark tactical portfolio to national central banks, which shall remain within the predetermined limits in terms of active management.
 
As from 2006 and in accordance with the specialisation principle, Banco de Portugal is entrusted with managing a Japanese yen portfolio. In turn, gold is not actively managed.
 
With regard to active management of foreign reserve assets, national central banks act on behalf of the ECB, so that counterparties can clearly identify that the ECB is the contracting party and that such operations are clearly distinguished from operations carried out when managing their own foreign reserve assets.

The ECB, using dedicated information systems, monitors the financial situation of reserves and, in a centralised manner, compliance with all predetermined limits to national central bank management.
 
In addition to the provisions of the above mentioned Guidelines, when managing the ECB’s reserves national central banks shall comply with the principles established also in the Code of Conduct of Banco de Portugal, as well as in the activity-specific code (the Code of Conduct of Banco de Portugal shall be used when carrying out monetary policy and foreign exchange operations involving the ECB’s reserve assets and when managing such assets) and in the applicable Manuals of Procedures.